Maine's Japanese Conundrum

By Dan Bookham | Nov 04, 2011

Camden Hills & Penobscot Bay — Anybody who has ever heard me talk about the Maine economy has heard me bring up Japan on a regular basis. At first blush, the connection between us here in the Pine Tree State and an entire nation half a world away might seem tenuous. However, when you look at things through the prism of demographics, Japan has some sobering and important lessons for Maine and the Midcoast region specifically.

First, a brief history lesson. Many of you may recall that during the 1980s much punditry was expended on the idea that Japan was going to both overhaul the USA as the world’s wealthiest economy and buy up much of corporate and cultural America in the bargain. Indeed, the Japanese economic miracle in the years following World War II through the early nineties was incredibly impressive and by the eighties did indeed appear to outstrip an America that seemed to be in decline.  But then through the nineties the Japanese economy faltered and stagnated while the US economy revived and surged forward (albeit on some shaky foundations: more on that in later columns).

What explains Japan’s reversal of fortune? As just about everybody knows, the basic ingredients for economic growth are supply and demand. Demand suffers (as we are experiencing globally right now) when over-inflation of value in one or two areas of the economy (real estate, for example) implodes, leaving behind debt and default to consume income, depriving goods and services of their markets. But what about supply?

Decline in demand is pretty obvious: less stuff is sold, less money is made. Decline in supply capacity is a little more intangible but equally as concerning, and I would posit that it has been the fundamental issue with the Japanese economy (and where the parallels with Maine are most apparent and concerning).

Supply forms an economy’s productive potential, which is comprised of three things:

  1. Capital
  2. Ideas
  3. Population

Capital- access to money to invest- is a no brainer (and one that is being depressed by the current ructions in the economy). Without ideas (new products, new processes, or new pricing) there is nothing to invest in. Population (or more crucially, population growth) provides the productivity that turns the combination of capital and ideas into profit and thus economic growth. And without population, the first two elements- capital and ideas- are also exponentially more difficult to generate.

In the early nineties Japan lost access to capital through market collapse, to ideas through protectionist impulses designed to preserve existing industries rather than explore new ideas and to population growth through restrictive immigration policies, low birth rate, and a declining available workforce due to a rapidly aging population. Does any of this sound uncomfortably familiar?

 Many of us working in economic and community development have known for a long time what recent census data reported here on Village Soup tells us: Maine is getting older and at a faster rate than the rest of the United States while our population growth- especially in the traditional working age demographics- is an anemic shadow of what it needs to be to support services for the 90% increase in people aged 75 and over in Maine projected for the next 20 years. There’s nothing wrong with a large number of older citizens as the knowledge base and other gifts they bring are invaluable, but a broad age pyramid is a basic fact of societal sustainability and something we need to find how to address quickly.

Without age (and I would argue, ethnic) diversity of sufficient magnitude we risk narrowing the capacity of our workforce, and with that we also begin to lose access to a sufficient number of ideas and input of capital to maintain the economic component of our fabled quality of life. That’s Maine’s Japanese conundrum, and we must focus on solving it- all of us, both young and old!

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